Cheniere starts producing at shale gas export terminal, ING says

Cheniere will export from Sabine Pass, La.

By Naureen S. Malik and Harry R. Weber, Bloomberg News

January 1, 2016

Photo: New York Times File Photo

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A liquid natural gas tanker is loaded at the Cheniere LNG terminal near Sabine Pass, La., in 2011. Before drillers started pulling the fuel out of tight-rock formations, Cheniere was building import terminals in anticipation of a domestic shortage. Following the onslaught of shale gas, Cheniere started retrofitting terminals for exports. less

A liquid natural gas tanker is loaded at the Cheniere LNG terminal near Sabine Pass, La., in 2011. Before drillers started pulling the fuel out of tight-rock formations, Cheniere was building import terminals ... more

Cheniere Energy Inc. began production at what will become the first terminal to export natural gas from America’s shale formations, according to ING Capital LLC, which helped finance the project.

The company is receiving about 50 million cubic feet of the fuel a day, chilling it into liquefied natural gas at the Sabine Pass terminal in Louisiana, and storing it in tanks before the first export, Richard Ennis, head of natural resources at ING, said by email. Ennis said he receives regular updates from the company and that he hadn’t been informed of a delay in the startup. Cheniere spokeswoman Faith Parker didn’t immediately respond to telephone and emailed requests for comment.

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Cheniere previously has said the inaugural cargo will leave the complex this month by tanker and that U.K.-based BG Group PLC is contracted to take the first shipment. Sabine Pass is “on schedule,” Ennis said. “You can’t dock a ship to offtake the LNG until you have a full shipload of LNG in the tanks, which is planned to happen in January.”

The start at Sabine Pass paves the way for other planned liquefied natural gas terminals that are projected to turn the U.S. into one of the world’s largest suppliers. The country could be capable of exporting 7.76 billion cubic feet of gas a day by 2019, a Bloomberg New Energy Finance analysis shows. While the U.S. has been sending gas abroad from Alaska for years, Cheniere’s cargo would mark the first to leave from the Lower 48 states, a testament to surging shale supplies that have sent domestic stockpiles to record levels.

Cheniere’s export terminal underscores how dramatically the shale boom has reshaped the natural gas market. Before drillers started pulling the fuel out of tight-rock formations using hydraulic fracturing and horizontal drilling, Cheniere was building import terminals in anticipation of a domestic shortage. Following the onslaught of shale gas, Cheniere started retrofitting terminals for exports.

Natural gas futures have plunged more than 80 percent from 2008 highs to a 16-year low in December on the New York Mercantile Exchange.

The U.S. cargoes will mark “a paradigm shift for the industry,” said Hadi Hallouche, head of liquefied natural gas trading at Trafigura Beheer BV.

The supply of natural gas scheduled to arrive at Cheniere’s Sabine Pass terminal from two pipelines for liquefaction surged to 128,987 dekatherms this week from just 6,720 a month ago.

Sabine Pass still needs authorization from the Federal Energy Regulatory Commission’s director of energy projects “to initiate commercial service” of its first liquefaction plant, Tamara Young-Allen, a spokeswoman at the Washington-based agency, said in an email.

“Commissioning and testing activities will initially produce minimal quantities of liquefied gas and is expected to increase in quantity during start-up activities, which are required to bring the train online to verify performance and functionality,” she said.

Cheniere has had a rocky year, dealing with a slide in U.S. natural gas prices, the ouster of its co-founder and chief executive officer, Charif Souki, and scrutiny from billionaire activist investor Carl Icahn. While the company’s stock gained almost a dollar on Thursday, it has fallen 47 percent this year.

With gas demand in parts of Asia weakening, U.S. suppliers are turning their attention to Europe as their primary market. BG Group spokeswoman Kim Blomley referred a request for comment on the startup to Cheniere.

Plants such as Sabine Pass will cool and liquefy natural gas to 1/600th of its volume for easier loading onto tankers. Cheniere plans to build at least six “trains” that produce LNG at Sabine Pass by late 2018, allowing the terminal to supply more than 3.5 billion cubic feet a day. The project is estimated to cost at least $15 billion.